Valuing Mitigation: Real Estate Market Response to Hurricane Loss Reduction Measures

Kevin M. Simmons, Jamie Brown Kruse and Douglas A. Smith

Southern Economic Journal, 2002, vol. 68, issue 3, 660-671

Abstract: This paper explores valuation of two measures of windstorm mitigation in a Gulf Coast city. Since the home owner is not able to reduce the probability that a hurricane or tropical storm will occur at the structure's location, any voluntary mitigation intended to fortify the home is a form of self‐insurance as defined by Ehrlich and Becker (1972). This distinction is important because market insurance and self‐insurance are substitutes and thus subject to the standard moral hazard problem. Using a unique Multiple Listing Service data set with detailed information on several hurricane mitigation features, we construct two models to test the influence of mitigation on resale price. The results of the hedonic study indicate that individuals place a positive value on a self‐insurance type of mitigation.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:68:y:2002:i:3:p:660-671

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